Slower, but still rising. Even with average 30-yr mortgage rates briefly exceeding 8% in October, home prices continued to rise. The housing data providers Black Knight and Core Logic both saw home prices 0.2% MoM during the month. That means that year-to-date, prices have risen 6%.

Job market loosens up a bit
On Tuesday, the JOLTS report (Job Openings and Labor Turnover Survey) shocked the market [electricity pun], with job openings dropping to 8.73 million in October, from 9.35 million in September. While that’s still a rather large number, you need to keep a few things in mind:

• It was well below consensus expectations of 9.40 million
• It was the lowest job openings figure since March 2021
• It was 27% below the peak for job openings: 12.03 million in March 2022
• The pre-pandemic figure was 7.18 million in January 2020

And then on Wednesday, we got ADP’s private employment report, which showed a continued slowdown in both job growth and wage growth.

• Companies added 103,000 jobs in November. That means that the three month moving average of job additions was 99,000/month, the lowest figure since March 2021
• While total job growth was still positive, several important sectors shed jobs during the month: Leisure & Hospitality, Manufacturing, Professional & Business Services, and Construction. Recall that Leisure & Hospitality has been one of strongest drivers of job growth in the last 18 months.
• Wage growth eased to +5.6% YoY (for people who stuck around) and +8.3% YoY (for people who got a new job). A year ago those figures were +7.6% YoY and +15.7%. So wages are still growing, they’re just growing a lot slower.

The all-important BLS jobs figure for the month of November will be out on Friday (today). The JOLTs and ADP data suggests that we’ll get a ‘good’ number (one that encourages the Fed to stay on hold) from the BLS. But that’s no guarantee. While the ADP and BLS jobs figures generally move in the same direction, from month to month they can — and do — go the opposite way.

Reminder: Nobody wants people to lose their jobs. But the Fed is looking at both inflation AND employment levels. Without clear signs that the historically tight labor market is loosening up, the Fed will be concerned that inflation could come roaring back. As callous as it sounds, we need to see the unemployment rate rising to convince the Fed that rate cuts (rather than more rate hikes) are the next course of action.

The final FOMC (Federal Open Markets Committee) meeting of 2023 will be held on December 12–13, with the policy rate decision on Wednesday, December 13. It’s only a slight exaggeration to say that nobody expects a rate hike (or a rate cut). That was the case before we got the JOLTs and ADP data, so it would take a monumentally horrific BLS jobs number today to convince Fed members that further tightening is needed.

A Closer Look at Inventory Levels

How was it possible that average 30-yr mortgage rates leapt from 3% to 8% over the last two years and home prices (for the most part) kept rising? Declining and low inventory levels; demand much greater than supply.

That’s why we need to watch inventory levels closely. A significant rise in inventory at the national or metro level would put pressure on prices — unless demand rises to meet it. Obviously, if mortgage rates keep falling, affordability (and demand) will expand. The big unknown is how sellers will react to these lower rates. Will they still feel ‘locked in?’

Here are some observations from Realtor.com’s latest update to its residential listings database:

• Active listings in November rose 2.4% MoM to 755,000. Normally, inventory would be falling by this time of year, but that hasn’t happened yet. Verrrry eeenteresssting.
• 755,000 is more than double the March 2022 lows, but it’s still 34% below pre-pandemic levels (November 2019).
• For the first time in 18 months, new listings in November 2023 were HIGHER than the same month last year.
• For the top 100 metros, 69 saw month-on-month increases in inventory. The largest % increase was North Portland/Sarasota (+13.5% MoM), but Oklahoma City, Birmingham, Tucson, Miami, Tampa and Cape Coral all saw more than 10% MoM increases.
• For the top 100 metros, 45 saw year-over-year increases in inventory. The largest % increase was in Cape Coral (+101% YoY). Other cities with large YoY increases in inventory were North Portland/Sarasota (+63%), El Paso (+32%), New Orleans (+25%), Memphis (+25%), Baton Rouge (+21%) and San Antonio (+20%).
• For comparison, I’ve included the inventory chart for Spokane, WA, where active inventory today is about the same as it was pre-pandemic. That’s how different the inventory picture can look from city to city!
• I’d be happy to send you inventory charts for your market area if you’re interested. Just email me: scott@listreports.com.

Mortgage Market

If we get a ‘good’ BLS jobs number this morning (Friday), I’d be very surprised if average 30-yr mortgage rates don’t move into the 6% range by Monday. Already, rates have fallen by about 1 percentage point in less than 2 months. That’s a big move!

In a nutshell, nobody expects the Fed to hike rates next week. In fact, the market is now pricing in somewhere between one and six rate CUTS over the course of 2024. Is the bond market getting ahead of itself? Probably. Ultimately, it will depend on how the economy behaves.

They Said It

“Restaurants and hotels were the biggest job creators during the post pandemic recovery. But that boost is behind us, and the return to trend in leisure and hospitality suggests that the economy as a whole will see more moderate hiring and wage growth in 2024.” — Nela Richardson, ADP Chief Economist

“Home price growth maintained its upward momentum in October, which continues to reflect gains from the strong spring season and contrasts with last year’s home price declines. But even with high mortgage rates, October’s price gains line up with historical trends and speak to the strength of some potential buyers’ purchasing power, as they continue to outnumber available homes for sale. Metros that are seeing relatively stronger price gains are those with higher job growth, as well as those with an influx of higher-income, in-migrating households.” — Dr. Selma Hepp, CoreLogic Chief Economist